Europe:
German economy to grow by 2.6 pct in 2018
The German economy will expand by 2.6 percent next year, the Ifo institute said on Thursday in its updated forecast for Europe’s economic powerhouse, pointing to a broad upswing that is generating record-high employment and buoyant tax revenues. The surprisingly bullish projection – a hike from Ifo’s previous estimate of 2.0 percent for 2018 – comes despite a political stalemate, with Chancellor Angela Merkel struggling to form a coalition government nearly three months after a federal election. If confirmed, the growth rate would be the highest since the 3.7 percent registered in 2011, when massive state spending followed the financial crisis and the global economic downturn. “The German economy is humming,” Ifo head Clemens Fuest said, adding that the strong economic upturn would extend well into 2018. “Many sectors are flourishing, from construction to manufacturing and trade, which is why the Ifo business climate index is climbing from one record-high to the next,” Ifo economist Timo Wollmershaeuser said. The Ifo institute will publish its closely watched indicator on German business morale for December next Tuesday.
Asia:
China raises short- and medium- term interest rates after Fed
China’s central bank nudged money market interest rates upward on Thursday just hours after the Federal Reserve raised the U.S. benchmark, as Beijing seeks to prevent destabilizing capital outflows without hurting economic growth. Economists were surprised by the move but said at just five basis points, the increases were small and more symbolic than substantive. The People’s Bank of China called it a “normal market reaction” to the Fed that would keep interest rate expectations reasonable and help with the deleveraging campaign. China’s major stock indexes declined modestly after the news, with infrastructure, IT and financial shares down. The PBOC increased rates on reverse repurchase agreements, or reverse repos, used for open market operations by 5 basis points for the 7-day and 28-day tenors. It also said in a statement it increased rates on its one-year medium-term lending facility (MLF) also by 5 basis points. Thursday’s move was the first time the Chinese central bank has raised rates since March, but market interest rates have risen on their own during the interim as the government pursues a range of policies to lower leverage and debt in the economy.
U.S.:
Fed Raises Rates, Eyes Three 2018 Hikes as Yellen Era Nears End
Federal Reserve officials followed through on an expected interest-rate increase and raised their forecast for economic growth in 2018, even as they stuck with a projection for three hikes in the coming year. “This change highlights that the committee expects the labor market to remain strong, with sustained job creation, ample opportunities for workers and rising wages,” Chair Janet Yellen told reporters Wednesday in Washington following the decision. In her final scheduled press conference, Yellen noted that her nominated successor, Jerome Powell, has been part of the consensus shaping the Fed’s gradual rate-hike strategy. In a key change to its statement announcing the decision, the Federal Open Market Committee omitted prior language saying it expected the labor market would strengthen further. Instead, Wednesday’s missive said monetary policy would help the labor market “remain strong.” That suggests Fed officials expect improvement in the job market to slow. The yield on 10-year U.S. Treasury notes fell after the Fed announcement, as did the Bloomberg Dollar Spot Index. Trading at record highs recently, stocks jumped after the Fed’s announcement before paring gains. Asked during a press conference about rising asset prices, Yellen said the high valuations don’t necessarily mean that they’re overvalued and that she’s not seeing a worrisome buildup of leverage or credit.